Phoenix Swimming, LLC
William S. Gannon PLLC
Attorney for Stephen Van Der Beken, Petitioning Creditor
David P. Azarian, Esq.
Azarian Law Office, PLLC
Attorney for Alleged Debtor
MEMORANDUM OPINION
I. INTRODUCTION
The Court conducted a trial on March 18, 2025, pursuant to
II. FACTS AND PROCEDURAL HISTORY
Matthew Williams (“Williams”) formed Phoenix in August 2010 to provide swim coaching services. Ex. 101. Williams is Phoenix‘s sole member, owner, and manager. Phoenix runs a competitive swim team, which currently has sixty-two swimmers. Phoenix does not own any real estate but instead rents pool facilities at which the Alleged Debtor‘s coaches train swimmers and conduct swim meets. Its assets consist of swimming blocks, touch pads, a timing system, dry land equipment, laptops, its coaching staff and swimmers, and the company‘s income stream and goodwill. Swimmers pay monthly or quarterly tuition, some pay for private lessons, and they also pay member dues and league fees. Phoenix‘s other source of income is fees from hosting swim meets.
Williams and Van Der Beken have known each other for many years. Ex. 108. Van Der Beken coached Williams when Williams was a high school swimmer. Thereafter the two continued their relationship as they both coached swim teams. In 2016, they entered into an agreement whereby Williams, in his individual capacity, purchased a 50% ownership interest in Van Der Beken‘s swim team business.
In 2021, Van Der Beken sued Williams and Phoenix in the Hillsborough Superior Court Northern District (the “State Court”) for breach of contract, unjust enrichment, and quantum meruit. In June 2023, Van Der Beken obtained a writ of attachment and trustee process against Williams and the Alleged Debtor with respect to property held by Bank of America. Ex. 106.
During this period, Phoenix failed to file its 2023 and 2024 annual reports with the State of New Hampshire and to pay associated fees. Ex. 8. As a result, the company was administratively dissolved under state law as of September 1, 2024. Exs. 8 and 101. The Alleged Debtor had been administratively dissolved once before, in 2015, and was reinstated upon the payment of a fee and the filing of the missing annual report and other forms. Ex. 101. Phoenix intends to reinstate the company once again and has not done so to date on the advice of counsel.
The State Court held a hearing on October 25, 2024, and Williams represented through counsel that he lacked funds to pay either the Judgment or the Fee Award. Ex. 12. The State Court ordered Williams and Phoenix to pay Van Der Beken $3,750.00 by close of business on October 25, 2024, and to begin making “monthly payments in the amount $750 month commencing on 11/1/24 and continuing the first of every month thereafter, until the judgment
On December 27, 2024, Van Der Beken filed a status report in State Court asserting that Williams “continue[s] to ignore, obfuscate and disregard legitimate discovery requests.” Ex. 15. On January 10, 2025, Van Der Beken filed a motion in State Court requesting that Williams and Phoenix be required to escrow profits from upcoming swim meets. Ex. 18. That motion was denied on February 4, 2025. Ex. 19.
Meanwhile, on January 30, 2025, Van Der Beken filed the Involuntary Petition in this Court.2 In it, he alleged that “[t]he debtor is generally not paying its debts as they become due, unless they are in the subject of a bona fide dispute as to liability or amount.” ECF No. 1 at 11. He described his claim against the Alleged Debtor as consisting of court ordered damages of $243,212.00, attorney‘s fees of $58,603.00, interest of $32,673.00, plus attorney‘s fees, interest, and costs accruing since the State Court orders. Id. at ¶ 13. The Petitioning Creditor also filed a declaration in support of the Involuntary Petition wherein he stated that Phoenix “has less than 12 creditors.” ECF No. 3 at ¶ 15. He further stated that he holds “a bona fide, non-contingent and indisputable, liquidated claim against Phoenix in excess of $329,238” and that he does not believe that he holds any perfected liens against Phoenix‘s property. Id. at ¶ 16.
Phoenix was served with a summons and a copy of the Involuntary Petition on February 4, 2025. ECF No. 7. The Alleged Debtor filed a response, which was not signed by counsel,3
On March 4, 2025, the Petitioning Creditor filed a reply asking the Court to strike the Alleged Debtor‘s response as it was not signed by counsel, and he requested that the Court enter an order for relief against the Alleged Debtor. ECF No. 14. The Court declined to do so and instead held a preliminary hearing on the Involuntary Petition on March 5, 2025. Thereafter the Court scheduled an evidentiary hearing for March 18, 2025 to determine whether “thе debtor is generally not paying such debtor‘s debts as such debts become due” within the meaning of
Before the evidentiary hearing, the Alleged Debtor filed a further answer and opposition to the Involuntary Petition signed by counsel. ECF No. 21. In it, the Alleged Debtor stated that it is generally paying its debts as they come due, noting that it is paying the Judgment in accordance with the Payment Order and that such payments are current. The Alleged Debtor stated it has one other debt, an American Express account on which it owed approximately $7,000.00.4 Phoenix argued in its second answer that the Involuntary Petition was filed in bad faith, as a substitute for ordinary debt collection, and that the Petitioning Creditor has available to him state law remedies to enforce or modify enforcement of the Judgment.
The Petitioning Creditor filed a reply to the Alleged Debtor‘s second answer to the Involuntary Petition. ECF No. 27. He argued that Phoenix has just two creditors: himself, who he admitted is being paid in accordance with the terms of the Payment Order, and American
Phoenix filed a sur-reply on March 21, 2025, making three new arguments that: (1) Van Der Beken is not eligible to be a petitioning creditor because his claim is contingent and the subject of a bona fide dispute as to amount; (2) the administrative dissolution of the Alleged Debtor does not require Phoenix to wind down its business and liquidate its assets under state law; and (3) payments on the State Court debt in accordance with the Payment Order are payments on the debt within the meaning of
On March 28, 2025, the Petitioning Creditor filed a response to the sur-reply arguing that: (1) Van Der Beken is eligible to be petitioning creditor because his claims are not contingent or the subject of a bona fide dispute as to amount; (2) the administrative dissolution of Phoenix requires it to liquidate its assets; and (3) the Alleged Debtor is not paying its debts in accordance with their terms, particularly, the Judgment and Fee Award. ECF No. 33.
While this case has been pending in the Bankruptcy Court, parallel proceedings have been taking in place in State Court. On March 10, 2025, the State Court held a status conference on the issue of “Payments and Discovery.” Exs. 23 and 25. The State Court stayed its proceeding so that the parties could brief the issue of whether the filing of the Involuntary Petition operated to stay the State Court proceeding as to the Alleged Debtor and Williams. Ex. 23. Parties were given until March 31, 2025, and April 15, 2025, respectively, to file briefs on thаt issue. Id.
On March 18, 2025, this Court held a trial on the validity of the Involuntary Petition. The Alleged Debtor provided the Court with its bank account records with its one account reflecting
Williams testified on behalf of the Alleged Debtor at the trial and presented evidence that in the period leading up to the involuntary bankruptcy filing on January 30, 2025, the Alleged Debtor was making routine payments to its employees, vendors, and trade creditors. During 2024, the Alleged Debtor paid more than $140,000.00 tо the following organizations that provided pool time or other services to Phoenix and its swimmers:
- Cedardale Pool Rental
- Cedardale Strength
- Lawrence Boys and Girls Club5
- Charles River Aquatics
- North Shore Swim Club
- Seekonk Aquatics/CS
- Boston University Rental
- USA Swimming
- Manchester Swim Team
- YMCA North Shore
- UVAC
Ex. 109. Phoenix also paid its coaching staff $34,350.00, taxes totaling $6,020.74, USA registration fees of $12,509.00, website fees for Team Unify of $1,194.00, storage unit fees of $1,186.60, and travel expenses of nearly $24,000.00. Ex. 102. The Alleged Debtor also paid Van Der Beken $5,250.00. Id. These expenses for 2024 total more than $220,000.00. Exs. 102 and
Van Der Beken also testified at the trial on March 18, 2025. When he was asked whether there were any other creditors of the Alleged Debtor who were not being paid, he said he believed “there could be” and that it “may be too soon” to determine that. He was unable to name any specific creditors other than himself, American Express, and the LBGC. He stated that he did not think he was the only creditor when he filed the Involuntary Petition. Van Der Beken testified that Phoenix‘s assets are worth between $20,000.00 and $25,000.00.
III. DISCUSSION
“The Bankruptcy Code and the Bankruptcy Rules specifically permit an alleged debtor to contest an involuntary petition.” In re HH Tech. Corp., 659 B.R. 788, 801 (B.A.P. 1st Cir. 2024).
As an initial matter, the Court must decide whether the Petitioning Creditor has standing to commence an involuntary case against the Alleged Debtor. See In re Vitaminspice, 472 B.R. 282, 290 (Bankr. E.D. Pa. 2012). The Petitioning Creditor has the burden of proving all statutory requirements of
An involuntary case against a person is commenced by the filing with the bankruptcy court of a petition under chapter 7 or 11 of this title—
(1) by three or more entities, each of which is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, or an indеnture trustee representing such a holder, if such
noncontingent, undisputed claims aggregate at least $18,600 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims;
(2) if there are fewer than 12 such holders, excluding any employee or insider of such person and any transferee of a transfer that is voidable under section 544, 545, 547, 548, 549, or 724(a) of this title, by one or more of such holders that hold in the aggregate at least $18,600 of such claims.
The Judgment provides Williams owes Van Der Beken $243,212.00 in damages and that Phoenix would be responsible for a subset of these damages in the amount of $65,067.00, as set forth in footnote 1 of this opinion, if not paid by Williams. The Judgment further provided that because “Williams is the sole owner of Phoenix and he uses the Phoenix bank account as his personal account, all damages owed by him to Van Der Beken may be paid from the Phoenix bank acсount.” Further, the Payment Order indicates “the defendants” owe a judgment in the amount of $265,212.00 and attorney‘s fees in the amount of $58,603.48. The State Court also ordered “the defendants” to make the $3,750.00 payment on October 25, 2024, and ongoing
Next, because the Alleged Debtor timely controverted the Involuntary Petition, the Court must determine whether the Alleged Debtor “is generally not paying such debtor‘s debts as such debts become due” within the meaning of the Bankruptcy Code, which provides in relevant part:
If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if—
(1) the debtor is generally not paying suсh debtor‘s debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount.
“The ‘generally not paying’ test is determined as of the date of the involuntary petition.” Betteroads Asphalt, 596 B.R at 547; Gen. Aeronautics, 594 B.R. at 470. The Involuntary Petition was filed on January 30, 2025, and so that is the operative date. The Bankruptcy Code does not set forth a specific standard for determining whether an alleged debtor is generally not paying its debts. As a result, there is a “a wide range of definitions and interpretations amongst courts of this particular standard.” Betteroads Asphalt, 596 B.R at 548. The First Circuit Court of Appeals has not established a specific standard. Id. Instead, most courts have adopted a flexible “totality of the circumstances” test in deciding whether a debtor is generally not pay its debts as of the petition date. Id. Further, the “generally not paying standard” is not a balance-sheet insolvency test or an “equity-insolvency” standard that considers whether the debtor can pay its debts, not whether it is paying its debts. Id. Rather, the “generally not paying standard” begins with questioning how many debts are being paid in proportion to the total number of debts. Id.
While failing to pay one significant creditor can satisfy the standard, there are several factors that courts have consistently applied to dеtermine whether the “generally not paying standard” is satisfied such as: (i) the number and amount of unpaid debts in default compared to current debts; (ii) the amount of delinquency of debt; (iii) the length of time of delinquencies; (iv) the materiality of nonpayment; (v) the nature of the debtor‘s conduct of its financial affairs; and (vi) the number and dollar amount of debts in default. Id. (citing Hon. Joan N. Feeney, Hon. Michael G. Williamson & Michael J. Stepan, Esq., Bankruptcy Law Manual, § 14.15 (5th ed.
The Court must look to the pattern of payments made by Phoenix before the Involuntary Petition was filed to get an accurate picture of Phoenix‘s financial condition. Boston Beverage, 81 BR. at 748. Phoenix presented an exhibit at trial that reflected that it made more than $220,000.00 in payments during 2024 to its various employees, vendors, and creditors, who by the Court‘s calculation likely total more than twenty in number. Phoenix paid (1) organizations that provided pool time or other services to Phoenix and its swimmers, (2) its coaching staff, (3) taxing entities, (4) USA Swimming, (5) Team Unify, (6) a storage company, (7) travel expenses, and (8) Van Der Beken. This evidence demonstrates that Phoenix has a good track record of generally paying its debts in the ordinary course of its business prior to the filing of the Involuntary Petition. Phoenix contends that almost all its trade debt is current and that it is a solvent, profitable company.
The Judgment and the Fee Award have been outstanding since June and August 2024, respectively. The amounts owed to Van Der Beken are large and material. Phoenix and Williams did not make any payments on these obligations prior to Van Der Beken filing a motion for contempt in the State Court. Once the State Court issued the Payment Order on October 25, 2024, Phoenix commenced making payments in accordance with that order. Phoenix paid Van Der Beken $3,750.00 by close of business on October 25, 2024. Phoenix then began making monthly payments of $750.00 on the first of the month starting November 1, 2024. As of the date of trial, it appears that Phoenix was in compliance with the Payment Order and paid Van Der Beken $7,500.00. It also appears that the Alleged Debtor is unable to pay the Judgment and Fee Award, in full, from its ongoing operations and money on hand but rather is only able to make periodic payments as set forth in the Payment Order. Most of the Alleged Debtor‘s unpaid debts consist of the claims of the Petitioning Creditor, who has not been paid in full, while other non-
There are other factors the Court will consider in making its determination under
When comparing the number of unpaid debts to the number of paid debts, the Court finds that the Alleged Debtor is paying almost all its debts as they become due. When comparing the amount of the unpaid debts to the amounts of the paid debt, the Court finds that the unpaid debts аre more than half the amount the Alleged Debtor paid for operating expenses in 2024 ($135,670.48 vs. $220,000.00) so the amount of the unpaid debts is large. The issue for the Court is whether the failure to pay the Alleged Debtor‘s one significant creditor in full (instead of by making small monthly payments as ordered by the State Court) is enough for the Court to conclude that the Alleged Debtor is “generally not paying” its debt based on the totality of the circumstances. The Court finds that it is not. The Alleged Debtor has not missed a significant number of payments to creditors, and it has not missed any payments owed to the Petitioning
Accordingly, the Petitioning Creditor has failed to meet his burden under
The Petitioning Creditor acknowledged at trial that the filing of the Involuntary Petition was motivated by his desire to force a liquidation of the company. However, the Petitioning Creditor also acknowledged that he has remedies he can pursue in State Court. Specifically, he can enforce the Judgment and the Fee Award in State Court by attaching, levying on, or selling at a sheriff‘s sаle the Alleged Debtor‘s non-exempt assets. ECF No. 14 at ¶¶ 16, 24; ECF No. 33 at 27. He can also seek a periodic payment order in accordance with New Hampshire state law. ECF No. 26 at 26. In addition, the Petitioning Creditor can pursue collection directly from Williams, who the State Court found liable for damages in the amount of $243,212.00.
Having determined that the Alleged Debtor was generally paying its debts as they became due on the petition date, the Court will dismiss the Involuntary Petition.12 Section 303 of
If the court dismisses a petition under this section other than on consent of all petitioners and the debtor, and if the debtor does not waive the right to judgment under this subsection, the court may grant judgment—
(1) against the petitioners and in favor of the debtor for—
(A) costs; or
(B) a reasonable attorney‘s fee; or
(2) against any petitioner that filed the petition in bad faith, for—
(A) any damages proximately caused by such filing; or
(B) punitive damages.
The award of costs and fees is permissive and properly within the discretion of the court. In re K.P. Enterprise, 135 B.R. 174, 177 (Bankr. D. Me. 1992) (citing In re Reid, 854 F.2d 156, 159 (7th Cir. 1988); In re Nordbrock, 772 F.2d 397, 400 (8th Cir. 1985); In re Better Care, Ltd., 97 B.R. 405, 410 (Bankr. N.D. Ill. 1989)). Bad faith is not a prerеquisite to the award of costs and fees under
Banco Popular De Puerto Rico v. Colon (In re Colon), Nos. PR 07-053, 06-04675-GAC, 2008 WL 8664760, at *9 (B.A.P. 1st Cir. Nov. 21, 2008) (footnotes omitted). The Court‘s discretion should be informed by factors such as “the reasonableness of the petitioners’ actions, their motivation and objectives, and the merits оf their view that the petition was proper and sustainable.” Hancock v. Blair House Assocs. Ltd., No. 2:22-cv-00099-JDL, No. 2:22-cv-00194-JDL, 2023 WL 2743641, at *11 (D. Me. Mar. 31, 2023) (quoting In re K.P. Enterprise, 135 B.R. 174, 177 (Bankr. D. Me. 1992)).
The State Court noted in its order dated October 24, 2024 that Williams represented through counsel that he lacked funds to pay all of the amounts owing to the Petitioning Creditor, but failed to produce any supporting documentation. Ex. 12. On December 27, 2024, Van Der Beken filed a status report in State Court asserting that Williams “continue[s] to ignore, obfuscate and disregard legitimate discovery requests.” Ex. 15. While Williams later produced bank statements to the Petitioning Creditor, it appears that many of the documents relied on by the Petitioning Creditor at trial were not produced until shortly before the trial in this case.
As reflected herein, this Court reached its decision in this case by carefully analyzing the testimony and documentary evidence produced, much of which was not available to Petitioning Creditor prior to commencing this case. This Court does not believe, under the totality of the circumstances, that the Petitioner was unreasonable in filing this case or that he lacked merit in his view that the petition was proper and sustainable. This Court will therefore exercise its discretion and not award fees, costs or damages to Phoenix.
For the reasons set forth above, the Court will dismiss the Involuntary Petition as Phoenix is generally paying its debts as they become due. The Court will not award fees, costs, or damages. This opinion constitutes the Court‘s findings of fact and conclusions of law in accordance with
Date: April 4, 2025
/s/ Kimberly Bacher
Kimberly Bacher
Chief Bankruptcy Judge